Surrendering an Endowment Policy

helpmysis

Hi,

I have an Endowment Plan with Sunlife Financial of Canada. I am thinking of cashing it in. I am halfway through (12.5) years, and the monthly payments are £90. I have had a surrender value from Sunlife, but wondered if it's worth approaching any other company for a valuation?

If anyone has done this and can suggest a company to go to I would appreciate it!

Thanks in advance,

Meeper

Very unlikely you will get a better valuation elsewhere - the market in TEP's (Traded Endowment Plans) has totally dried up in recent years.

What is your reasoning behind cashing it in?

McKneff

Dont forget while you have this policy, you also have life insurance.

helpmysis

Meeper wrote: »

Very unlikely you will get a better valuation elsewhere - the market in TEP's (Traded Endowment Plans) has totally dried up in recent years.

What is your reasoning behind cashing it in?

Just could better use the money. We have an offset mortgage, so thought it might be better there. I can't imagine i will see a could return to this, so thought i would do better putting the monthly amount to my ISA or something. Not desperate to cash in, but just a thought.

I have another life policy, so that element isn't too critical.

Meeper

Before you do cash it in, make sure you do a thorough check of what you have there. Some endowments are absolutely worth keeping, especially those with guaranteed annual bonus rates and suchlike. You should probably speak to a financial adviser who can tell you exactly what you have, the benefits of keeping it, and the different options around surrender.

dunstonh

Just could better use the money. We have an offset mortgage, so thought it might be better there.

are you sure?

Many endowments are still beating savings accounts. The reason they are falling it short is not so much that they are performing badly but performing lower than the target growth rate which was often set using growth figures achieved in the 70s and 80s.

As Meeper says, you have to be wary of guaranteed bonus rates or Mortgage endowment promises (std Life, Pearl and Aviva mainly). if there is a cost of surrender, you have to factor that into the alternative. e.g. if the surrender penalty equates to an equivalent of 2.1% p.a. over the remaining therm, then the alternative would have pay 2.1% just to stand still. If it has a bonus rate of 3.50% then the alternative would have to beat 5.6% net. Then if there is say a £10,000 MEP on maturity that equates to an annual equivalent of 2.5%. Then the alternative would have to beat 8.1% just to pay the same.

Endowments are obsolete and have under performed expectations but that doesn't mean they are performing badly relative to other things.

helpmysis

dunstonh wrote: »

are you sure?

Many endowments are still beating savings accounts. The reason they are falling it short is not so much that they are performing badly but performing lower than the target growth rate which was often set using growth figures achieved in the 70s and 80s.

As Meeper says, you have to be wary of guaranteed bonus rates or Mortgage endowment promises (std Life, Pearl and Aviva mainly). if there is a cost of surrender, you have to factor that into the alternative. e.g. if the surrender penalty equates to an equivalent of 2.1% p.a. over the remaining therm, then the alternative would have pay 2.1% just to stand still. If it has a bonus rate of 3.50% then the alternative would have to beat 5.6% net. Then if there is say a £10,000 MEP on maturity that equates to an annual equivalent of 2.5%. Then the alternative would have to beat 8.1% just to pay the same.

Endowments are obsolete and have under performed expectations but that doesn't mean they are performing badly relative to other things.

Thanks, you have all made some good points. No, I am not sure - was just thinking without any real rationale!! Thought it was worth exploring options - appreciate your advise.